2017 Estimated end of year Distributions for Mutual Funds - some already published

[RunningBum]

Quote:

Originally Posted by pb4uski One thing to keep in mind is what if you own international funds that you need to increase the dividend amounts included in income on your tax return for estimated foreign taxes paid. So for example, if a fund had $5,000 of income and paid $600 of taxes and distributes $4,400 in dividends, on your tax return it will show up as $5,000 of dividend income and $600 of foreign taxes paid even though the credit to your account for dividends was only $4,400.

So, for estimating purposes, for VG total international for example, the first 3 quarter dividend payments credited to my account do NOT include the foreign tax paid part of the dividend. The 4Q estimate they give does, or does not?

[jabbahop]

Thanks.

Good news/bad news for us. The good is that overall dividend returns are higher than last year. The bad is that it is putting us close to the ACA subsidy limit which will mean we might need to owe some @ tax time.

[audreyh1]

Quote:

Originally Posted by RunningBum So, for estimating purposes, for VG total international for example, the first 3 quarter dividend payments credited to my account do NOT include the foreign tax paid part of the dividend. The 4Q estimate they give does, or does not?

Most fund companies don't tell you what the foreign tax paid is until after the end of the year. It is normally NOT included in the dividends reported. Then after the end of the year, your reported dividend increases, and you get the information about the foreign tax that was paid on your behalf.

So you in fact get paid less, but more income is reported on your 1099.

[pb4uski]

Exactly. I estimated the 2017 foreign taxes paid based on 2016 foreign taxes paid in relation to 2016 dividends received and then grossed up the dividends included in income for that amount and took a tax credit for that amount.

All this sounds bad, but it isn't in that I expect my foreign tax credit to exceed my taxes on non-qualified dividends so for my international holdings in my taxable account my effective tax rate is negative.

[RunningBum]

Quote:

Originally Posted by audreyh1 Most fund companies don't tell you what the foreign tax paid is until after the end of the year. It is normally NOT included in the dividends reported. Then after the end of the year, your reported dividend increases, and you get the information about the foreign tax that was paid on your behalf. So you in fact get paid less, but more income is reported on your 1099.

I understand that, but I can make a decent estimate based on the rate in previous years on the same fund.

My specific question is, VTIAX has $0.28 for the "Net income available 12/31/2017". Does that include foreign taxes or not?

Quote:

Originally Posted by pb4uski Exactly. I estimated the 2017 foreign taxes paid based on 2016 foreign taxes paid in relation to 2016 dividends received and then grossed up the dividends included in income for that amount and took a tax credit for that amount. All this sounds bad, but it isn't in that I expect my foreign tax credit to exceed my taxes on non-qualified dividends so for my international holdings in my taxable account my effective tax rate is negative.

Sure, it nets out, but the foreign tax credit comes after MAGI, and with Roth recharacterizations likely going away, it's more and more important to estimate as accurately as possible. By the time we get the final amounts it's going to be too late to tweak anything.

Again, my question is, are you grossing up all of your foreign fund dividends based on that rate, or just the first 3 quarters?

[MichaelB]

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Originally Posted by RunningBum My specific question is, VTIAX has $0.28 for the "Net income available 12/31/2017". Does that include foreign taxes or not?

My guess is no. Like the first 3 quarterly dividends, this is probably the cash you will receive, and the foreign tax will be grossed up when they prepare the 1099. If you need certainty, I'd call Vanguard.

[RunningBum]

btw I tried to look for last year's estimations from VG vs. actual to answer this for myself based on 2016, but I can't find those estimates anywhere. I think VG removes estimates from view once actuals come out to avoid confusion.

[RunningBum]

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Originally Posted by MichaelB My guess is no. Like the first 3 quarterly dividends, this is probably the cash you will receive, and the foreign tax will be grossed up when they prepare the 1099. If you need certainty, I'd call Vanguard.

Thanks. I'd lean towards that too, since it says "Net", but since pb4 apparently has been doing this (very helpful tip, btw), I was hoping he'd have more certainty about the Q4 estimates.

[scrabbler1]

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Originally Posted by audreyh1 Yes. Fidelity pays most of their cap gains distributions out on Friday's in December. So 12/1, 12/8, 12/15, 12/22 etc. Yesterday 12/8 was a big one. So is next Friday 12/15.

Actually, because of the Christmas and New Years holidays, after Friday 12/15, non-monthly (dividend) funds going Ex-dividend will do so on 12/26 or 12/28, paying out the next day. Nothing is going on 12/22.

[pb4uski]

I think the declarations are all net of tax. FWIW I took what I received YTD and added a Dec dividend of 28c a share to get what I expect to receive for the year, then divided that result by 2016 1099 div/2016 div received to get an estimate of what will be on my 2017 1099.

[RunningBum]

Quote:

Originally Posted by pb4uski I think the declarations are all net of tax. FWIW I took what I received YTD and added a Dec dividend of 28c a share to get what I expect to receive for the year, then divided that result by 2016 1099 div/2016 div received to get an estimate of what will be on my 2017 1099.

Thanks. It's important but not critical for this year, but for next year it will be so I'm going to pay close attention to how it works this year.

[pb4uski]

This whole gross-up thing has surprised me in the past, but given that I had the ability to recharacterize as much as I wanted it was no big deal. Looks like that's changing.

[Helen]

Doh! I totally forgot about this and bought $100k of Wellseley on Friday...

[audreyh1]

Quote:

Originally Posted by RunningBum I understand that, but I can make a decent estimate based on the rate in previous years on the same fund.

I think that's the best you can do. Add the previous year's foreign tax credit to this year's distributions. Or calculate based on the rate. I believe that foreign tax is only paid on dividends?

[pb4uski]

Quote:

Originally Posted by Helen Doh! I totally forgot about this and bought $100k of Wellseley on Friday...

Ouch... can you sell it on Monday and then wait until it goes ex-dividend?

[RunningBum]

OK, I did another search and found VG's 2016 year end estimated distributions. The per share amount for Total Intl was net of taxes, so in estimating what will show on 1099-DIV you'll have to factor in foreign taxes on top of the three quarters already distributed, plus the estimated 4th quarter. Just as people said here.


Also, these really are just estimates. VTIAX estimated $.20 per share, and was actually $.209. VTSAX was estimated at $.32, but the actual was $.354 per share. The latter seems like a surprising amount off. At this point in the year I wouldn't expect any new dividend declarations announced with increases that still take place this year.


I guess it's just a matter of staying well away from any cliffs until after dividends are all distributed, and even then you have to conservatively guess how much is added in international fund dividends in the form of foreign taxes paid. I'd promise not to do the Roth conversion horse race again if they'd let me do small recharacterizations to not fall over the ledge.

[Trooper]

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Originally Posted by RunningBum ... and with Roth recharacterizations likely going away, it's more and more important to estimate as accurately as possible.

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Originally Posted by pb4uski This whole gross-up thing has surprised me in the past, but given that I had the ability to recharacterize as much as I wanted it was no big deal. Looks like that's changing.

Thanks for the heads up on the potential elimination of recharacterizations. It caused me to do a search on this forum and I got the info needed, although looks to be still pretty vague. Will have to sharpen my pencil to get my conversion amount as close as possible (to the top of the 15% bracket) in the event recharacterizations get zapped.

[Helen]

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Originally Posted by pb4uski Ouch... can you sell it on Monday and then wait until it goes ex-dividend?

I will have to see if there is a penalty for a short term holding. I'm moving my Vanguard accounts to Fido and thought I would skirt the $75 fee by buying before moving the account.

[pb4uski]

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Originally Posted by RunningBum .... I'd promise not to do the Roth conversion horse race again if they'd let me do small recharacterizations to not fall over the ledge.

Yes, the horse race aficionados ruined it for the rest of us... I'd like to see them limit recharactrizations to $1,000... it would make the horse race not worth the effort but still allow us who want to dial in our Roth conversions to do so... it seems most likely that they just go away though.

[GrayHare]

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Originally Posted by pb4uski Yes, the horse race aficionados ruined it for the rest of us... I'd like to see them limit recharactrizations to $1,000... it would make the horse race not worth the effort but still allow us who want to dial in our Roth conversions to do so... it seems most likely that they just go away though.

With recharacterizations disallowed starting in 2018, how will over-contributing and over-converting to Roth IRA be rectified? I've looked but yet to see any penalty mentioned.